Think before you just buy a new or pre-loved car. Image via Adobe Stock

Thinking of buying a new car? Here are five finance tips

If you are planning on buying a new or pre-loved car you might want to consider these five finance options.


Think before you just buy a new or pre-loved car. Image via Adobe Stock

If you are thinking about purchasing a new or previously loved car you will also need to determine the best financing option for you.

According to the best ways of financing a new car are listed below.

Here are five options to consider when purchasing a new or pre-loved car:

Cash purchase
If you can pay cash for your car, it would be the ideal way to purchase it!

Installment finance
This is the most common and straightforward car payment method. You pay off the car in monthly installments for up to 72 months either with or without a deposit.

Monthly repayments are worked out by calculating the purchase price of a vehicle, less the deposit that is put down at the start of the deal.

The lengthier the term, the more interest one would pay. Ideally, you should put down a substantial deposit and structure the loan over the shortest possible time. This way will ensure that you pay the least amount of interest.

With this option, you own the car outright after your last payment of the installment term.

Installment finance with a balloon payment
Also known as a residual – this option is similar to installment finance, except a portion of the purchase price is set aside so that the repayments are calculated on a lower amount.

Simply put, balloon payments are like deposits except they’re payable at the end of a term instead of at the beginning.

READ: Bargain buying: How to buy a car on auction without being taken for a ride

Buyers must be careful of the amount put into a balloon because they will be responsible for the lump sum once the finance term is finished. After paying that installment for all those years, the car is still not yours. The big amount that was taken off to lower your installment to something you could afford is now due.

Leasing instead of buying
Leasing a vehicle is just what it says: You pay for the use of a vehicle for a set period and return it at the end of the period.

The lease agreement gives you the right to use the vehicle as your own, without owning it. It has its pros and its cons, such as restrictions on the vehicle’s usage, but it also means that the installments are more affordable.

You can drive a new car every two to four years and enjoy the benefits of the latest models. When the lease elapses, you do not have to worry about selling or trading in the car. Or settling any outstanding money owed to your bank.

Monthly repayments are more affordable, and there are no service and maintenance costs as these are covered by the service and maintenance contracts.

Lease agreements have strict limitations and penalties. You need to ensure you get the car serviced at the specified intervals, repaired by approved repairers, and adhere to the mileage limits

READ: Buying a car: Things to consider before taking the plunge

Guaranteed buy-backs / Guaranteed Future Value (GFV)
Guaranteed Future Value is becoming a more popular option for vehicle finance in South Africa.

Any new car starts to depreciate the second you drive it off the showroom floor. A GFV plan, therefore determines what the future value of your car will be if detailed terms and conditions regarding the vehicle condition, mileage, and maintenance are met.

This means that you will be aware of what your car will be worth once the contract term (usually between three and four years) is reached.

You are then given three choices – you can either:

  1. enter into another GFV deal and drive away in a new car,
  2. settle the outstanding amount and own the vehicle, or
  3. return the vehicle to the dealership and walk away (provided you did not exceed the agreed mileage, and the vehicle is in acceptable condition as stipulated in your plan).

If you do plan on choosing this type of finance, you need to make sure that you read and fully understand the fine print.